China Merchants Securities: Branch line consolidation is booming, and oil transportation still has phased investment opportunities

The Zhitong Finance App learned that China Merchants Securities released a research report saying that shipping stocks fluctuated clearly in the first half of '25 due to tariffs and geographical conflicts, but the overall trend was upward. The Shenwan Shipping Index rose 1.9% from the beginning of the year to date, outperforming the Shanghai and Shenzhen 300 Index by 4.1 percentage points. The shipping market was relatively prosperous in the second half of 2025, and the tanker market still has phased investment opportunities; medium- to long-term proposals focus on COSCO Marine Control (601919.SH) and COSCO Haite (600428.SH). 25H2 can give priority attention to the regional shipping market. Benefiting from the increase in interregional shipping trade, freight rates are still relatively high; it is expected that the performance of regional shipping companies in the first half of the year will show a clear growth trend.

The main views of China Merchants Securities are as follows:

Shipping stocks were affected by tariffs and geographical conflicts in the first half of '25. Fluctuations were obvious, but the overall trend was upward

In the strong cycle industry, high-frequency freight rates showed a clear positive correlation with stock prices. In terms of shipping, phased shipping increased freight rate flexibility, and the CCFI average was still high; oil transportation benefited from increased production in oil-producing countries and increased US sanctions in the first half of the year, and the bottom of the freight rate showed a repair trend, but due to last year's high base, the average BDTI freight rate declined year on year; dry bulk transportation was sluggish in the first half of the year, coal and iron ore stocks were high, and the BDI center declined year-on-year. Judging from the rise and fall rate of the industry, the Shenwan Shipping Index has risen 1.9% since the beginning of the year, the Shanghai and Shenzhen 300 Index has fallen 2.2%, and the shipping sector is leading the Shanghai and Shenzhen 3004.1 percentage points. Judging from the rise and fall rate, the increase in shipping-related standards from the beginning of 2025 to now is the highest.

Consolidation

Capacity delivery continues, and demand is greatly affected by tariffs and geopolitical conflicts. Freight rates fluctuated markedly in the first half of '25 due to repeated tariff policy adjustments, but the overall boom was still good. Currently, the trade policy between China and the US is easing. Supply and demand forecast: Demand growth rates for tons and nautical miles are expected to be 2.6%/-2.9% in 25/26 (assuming that the Red Sea remains unnavigable in '25 and gradually navigable in '26); capacity growth rates are 6.7%/4.1%, respectively. Freight rate outlook: In the second half of '25, based on the restoration of routes between China and the US and the assumption that the Red Sea is still detour, dry freight rates returned to normal seasonal changes after falling from a high level (weakening transportation logic). Delivery pressure for small and medium-sized ships is less, and the boom in Asian and emerging international markets may be better than mainline routes.

Oil transportation

Largely affected by geopolitical conflicts, the VLCC supply and demand pattern was still improving in '25. Freight rates in the first half of '25 were affected by the Middle East conflict and the increase in US sanctions against Iraq, and fluctuations were quite obvious. After the conflict between Iraq and Israel escalated in June, the fire stopped for a short time, and tanker freight rates rushed back down. Supply and demand forecast: The macroeconomic outlook is uncertain, but Asian countries support oil demand. Demand for oil tons and nautical miles is expected to grow at 0.5%/-1.3% in 25-26, and capacity growth rates of 2.1%/4%, respectively. However, VLCC capacity growth was limited, with growth rates of 0%/2.5% in 25-26, respectively. In terms of freight rates, the relationship between supply and demand in the VLCC market improved in '25, and freight rates in the large ship market are still flexible upward during the peak season.

Dry bulk transportation

Prosperity declined year on year in '25, and attention was paid to the increase in iron ore trade by tons and nautical miles in '26. Due to the current high inventory of bulk goods and a slowdown in transportation volume, the freight rate center was under downward pressure in the first half of '25. Supply and demand forecast: Looking ahead to 25-26, the growth rate of bulk trade will slow down due to weak demand and high domestic inventories; however, benefiting from the development of new energy sources and new industries, the volume of trade in small bulk metals and bauxite is still supported. Overall, demand growth rates for dry bulk tons and nautical miles are expected to be -0.8%/0.9% in 25-26, respectively, and capacity growth rates of 3.1%/3.2%, respectively. However, Capesize's capacity growth was limited, with growth rates of 1.4%/1.9% in 25-26, respectively. In terms of freight rates, it is expected that the 25Q3 peak season may recover slightly, but the overall boom is weaker than last year; in '26, along with the increase in the share of long-haul pallets and the easing of trade relations between China and the US, freight rates are expected to recover.

Aspect of the target

25H2 can give priority attention to the regional shipping market, benefiting from the increase in interregional shipping trade, and freight rates are still relatively high; it is expected that the performance of regional shipping companies in the first half of the year will show a clear growth trend, and attention can be paid to Dexiang Shipping, Haifeng International, and Zhonggu Logistics. In addition, we can still pay attention to the left-hand layout opportunities for tanker stocks. Currently, valuations are relatively low, and they are more flexible during peak seasons (or regional conflicts escalate). We can pay attention to COSCO Marine and China Southern Petroleum (dividend progress is expected to accelerate). The medium- to long-term recommendations focus on COSCO Marine Control (stable cash flow, excellent corporate governance) and COSCO Haite (scale expansion will be rapid in the next 2 years, and performance will follow the growth in traffic volume).

Risk warning: macroeconomic downturn, major natural disasters, production in major oil producers falling short of expectations, geopolitical risks, worsening trade relations between China and the US, etc.